Ever since HSBC switched its U.S. advisors to salary nearly three years ago, the bank giant has never looked back.
"It's something we take a tremendous amount of pride in," Andrew Ireland, executive vice president of Retail Banking and Wealth Management at HSBC Bank in the U.S., said of the move to the new compensation structure.
By paying advisors a salary and a discretionary bonus, rather than commissions based on sales, the bank was able to better align client and advisor interests. As a result, advisors are rewarded according to how much they're helping their clients rather than how much they've sold them, Ireland said.
Indeed, clients now have a say in how much advisors are paid, albeit indirectly. An advisor's discretionary bonus is based on client satisfaction levels and other performance indicators, including the number of new clients and increases in assets under management. "We continuously measure client satisfaction with a survey that informs us of our client satisfaction with their advisor, and their willingness to recommend our services," Ireland said.
The determination of the bonus is not "formulaic," where advisors get paid "this for selling that," he said. Instead, the bonus is based on whether advisors are helping clients and assisting them in navigating the organization. "If you're doing that on a consistent basis, you should have more clients, you should be able to grow your client base and you should be having more money under management," Ireland said.
A BET THAT PAID OFF
HSBC took a gamble when it switched its advisors to salary, with many industry observers saying it would lose its best advisors and that the business would stumble. One of the biggest concerns was that average production per advisor would fall as top performers defected to other firms.
But the business has been strengthened by the move, according to Ireland. It helped hasten the transition to fee-based business and better positioned wealth management for growth.
For the first six months of 2015, HSBC North America generated $415.5 million in wealth management income, up 10.3% year-over-year, according to the Sorrento Pacific – Michael White Wealth Management report. Wealth management income includes securities brokerage commissions and fees; annuity fee income; trust income; and investment advisory, banking and underwriting income.
Ireland acknowledges that attrition was above normal at first, but adds that several advisors who left have since come back. They returned because they valued HSBC's culture, he said.
"Many organizations say it's about the client. We demonstrated through our actions and through our words that for those individuals who want to have a career helping people with their financial needs, that's what we do," he said. "It's very easy to make money in this world. It's difficult to do it morally."
Ireland also added that HSBC has been consistent with its messaging that if advisors have always done what's right for the client, the organization will do what's right for them and provide them with "recognition and reward that's commensurate with the value that they're bringing to the organization and to the client."
Ireland declined to disclose whether advisors are now paid more or less as a result of the change, saying only that compensation is aligned with business performance. "It's not to pay them more; it's not to pay them less," he said. "It's to pay them differently."
LOOKING TO GROW ADVISOR FORCE AND CLIENT BASE
Ireland says he aims to grow the advisor force by 10% to 15% in 2016. The bank currently has 230 relationship advisors in the U.S. who cater to customers with $100,000 to $5 million in deposits, insurance and investments with the bank. These advisors handle customers' wealth management as well as banking needs. In addition, the bank employs 25 advisors who work with customers holding $10,000 to $100,000 in deposits and investments products, Ireland said.
HSBC is also gunning for more clients. "Our plans are to continue to grow our client base with quality clients," Ireland said.
Ireland declined to say how many clients the bank has or provide specific growth projections, but he noted that client growth was expected in both its higher-end and lower-end segments.
"Our intent is to continue to grow the retail banking and wealth management business in a sustainable and profitable way," he said.
Was he worried that automated advice providers like Betterment and Wealthfront might put a crimp in the bank's wealth management growth plans?
The concerns aren't relevant to HSBC because of "the journey it's on," Ireland said, referring to the bank's transition to salary-based compensation for advisors. "You're not based on a revenue-generation structure. You're based on helping clients, controlling money and fulfilling on needs – having more clients today than yesterday."
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